I like the engineer's comment on cost, "Just south of prohibitive". Well no wonder, considering how complicated it is. Sounds like the engineers think this as well. How much extra efficiency does this actually gain over say a series hybrid (without extended range capabilities) which would need an engine, a generator, a fairly simple battery a motor and a single or maybe two speed gearbox?
If it works well then you can have your cake and eat it too but people are getting the wrong idea here, efficiency does not have to be complicated and is usually simpler than the status quo. Efficiency means less, not more. The shining light at the end of the tunnel is the battery electric with a battery, controller, motor and single speed gearbox, simplicity.
Also, just read the side note about the third hybrid system GM is developing for small cars, that sounds a little more promising.

by Jack Rosebro General Motors 2MT70 FWD two-mode hybrid transaxle, as seen from engine side. Click to enlarge. At the recent SAE 2009 World Congress in Detroit, General Motors engineers presented the first front-wheel-drive (FWD) iteration of their two-mode hybrid transaxle, termed the 2MT70 ...